4 Questions Every Board Member Should Ask about Mergers
It’s no secret that merger and acquisition activity is poised to ramp up in the financial services industry as leaders seek ways to manage reduced earnings, offer more convenient service through enhanced digital and physical channels, diversify their geographic base, and improve technological infrastructure.
According to S&P Global, June 2021 saw the highest number of U.S. bank M&A deals since September 2019. Credit union merger activity hasn’t dwindled this year either with the NCUA approving 33 mergers in the first quarter of 2021, compared to 34 consolidations in the first quarter of 2020.
Increasingly, Board of Directors have a vital role to play in setting the strategy for their institutions and proactively planning for long-term, sustainable growth. This starts with evaluating the options available, including potential mergers & acquisitions.
Here are a few of the key questions that should be asked as part of the evaluation process at the governance and executive level. This thought process also happens to align with a board’s fiduciary duty to always act in their key stakeholders’ best interests.
Question #1 – Is this an opportunity that could increase value for my members/customers?
It’s important for any board member to understand how a merger opportunity could provide important benefits like greater convenience, more competitive pricing, and expanded products and services.
Would this collaboration provide:
- increased access to advanced technological distribution channels in current and future expansion areas?
- practical economies of scale allowing more competitive offerings and improved pricing opportunities?
- an enhanced, more complete suite of products & services?
- in-person service and superior digitalexperiences that are adaptable and scalable to improve and enhance service?
Question # 2 – Would this opportunity increase the overall institution’s value?
Evaluate how the proposed opportunity could increase operational efficiency, expand access to human capital, increase and diversify revenue streams, offer geographic diversification, increase relevance, and provide scale.
Would this collaboration provide:
- an efficient, combined back office or retain multiple operational or “administrative centers” to retain employee talent in areas currently conducting business?
- access to a greater talent pool, additional career opportunities, and better compensation?
- lower borrower acquisition costs through greater reach and efficiency?
- increased geographic and economic diversification to better position the combined institution for macroeconomic fluctuations and long-term viability?
- a larger organization with the ability to maintain and grow market share?
- access to a larger asset base and more capital to leverage for member benefit (technology, additional products, member service)?
Question #3 – Would this opportunity increase employee value?
The welfare of employees is often a key concern for boards and senior leadership as they consider merger opportunities. However, a larger organization can often provide more to employees. Consider the potential positive results like retention, increased training, improved career path potential, and enhanced compensation & benefits.
Would this collaboration result in:
- additional specialized positions as well as succession plan opportunities?
- the creation of a larger institution with the potential to remain competitive on compensation and benefits (“Do No Harm” to employees)?
- new roles, products and services, and expanded training opportunities for employees?
- a competitive compensation structure with greater ability to incentivize employee engagement?
- retaining more engaged and performing employees, while also offering a competitive retirement consideration for those at this stage of their career?
- short term (integration) and long term career path opportunities?
Question # 4 – Would this opportunity increase board and community value?
Boards of community financial institutions are often concerned with potential impacts to the communities they serve. Consider how community involvement, philanthropy and long-term sustainability could be impacted. Would this collaboration:
- allow the combined organization to increase philanthropic efforts?
- motivate employees to donate time, ideas, and energy toward community causes?
- create a larger institution with the ability to maintain long-term relevance and better serve the broader community?
- enhance governance by retaining representation and diverse perspectives that represent the members/customers served?
It’s no secret that merger and acquisition activity is poised to ramp up in the fi...